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Item 1A. Risk Factors

2021-07-27 compared with 2020-08-10 · 186 added, 495 removed, 211 unchanged (76% of the section changed)

Risk Factors.

In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company's business.

Our financial and operating results are subject to a number of factors, many of which are not within our control.

These factors include those set forth below.

Our business, financial condition or results of operations could be materially and adversely affected by any of these risks.

Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition or results of operations.

RISKS RELATED TO OUR BUSINESS

Consolidation in the healthcare industry could have an adverse effect on our revenues and results of operations.

Many healthcare industry companies, including medical device companies, are consolidating to create new companies with greater market power.

As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense.

These industry participants may try to use their market power to negotiate price concessions or reductions for medical devices that incorporate components produced by us.

If we are forced to reduce our prices because of consolidation in the healthcare industry, our revenues would decrease and our consolidated earnings, financial condition, or cash flow would suffer.

We face intense competition in the medical device industry.

We may be unable to compete effectively with respect to technological innovation and price which may have an adverse effect on our revenues, financial condition or results of operations.

In addition to the other information contained in this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission, the following risk factors should be considered carefully by investors in evaluating our business.

Our financial and operating results are subject to a number of risks and uncertainties, including those set forth below, many of which are not within our control.

Our business, financial condition, results of operations and/or liquidity could be materially and adversely affected by any of these risks or by additional risks not presently known to us or that we currently deem immaterial.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

We face intense competition in the medical device industry which continues to experience consolidation.

We may be unable to compete effectively with respect to technological innovation and price which may have a material adverse effect on our revenues, financial condition, results of operations and/or liquidity.

The markets for our products are highly competitive and we expect competition to continue to intensify.

The medical device industry is characterized by rapid technological change, frequent product introductions and evolving customer requirements.

Our customers consider many factors when choosing products, including technology, features and benefits, quality, reliability, ease of use, clinical or economic outcomes, availability, price and customer service.

We face competition globally from a wide range of companies, many of whom have substantially greater financial, marketing and other resources than us.

We may not be able to compete effectively, and we may lose market share to our competitors.

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TeleFlex Medical;

BD Medical Technology;

Becton Dickinson;

Smiths Medical, a subsidiary of Smiths Group plc;

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Johnson and Johnson;

Philips Healthcare;

Inari Medical;

Varian Medical Systems and Total Vein Systems.

Many of our competitors have substantially greater:

• financial and other resources to devote to product acquisitions, research and development, marketing and manufacturing;

• variety of products;

• technical capabilities;

• history of developing and introducing new products;

• patent portfolios that may present an obstacle to our conduct of business;

• name recognition;

• distribution networks and in-house sales forces.

Our competitors may succeed in developing technologies and products earlier, in obtaining patent protection or regulatory clearance earlier, or in commercializing new products or technologies more rapidly than us.

Our competitors may also develop products and technologies that are superior to those we are developing or that otherwise could render our products obsolete or noncompetitive.

In addition, we may face competition from providers of other medical therapies, such as pharmaceutical companies, that may offer non-surgical therapies for conditions that are currently, or in the future, may be treated using our products.

Our products are generally sold at higher prices than those of our competitors.

However, in the current environment of managed care, which is characterized by economically motivated buyers, consolidation among healthcare providers, increased competition and declining reimbursement rates, we are increasingly being required to compete on the basis of price.

If we are not able to compete effectively, our market share and revenues may decline.

We face intense competition from other companies, and our inability to continue to effectively develop, acquire and/or market new products and technologies could have a material adverse effect on our business, results of operations and/or financial condition.

The medical device business is intensely competitive and is characterized by rapid technological change, frequent product introductions and evolving customer requirements.

Our customers consider many factors when choosing among products, including features and reliability, quality, technology, clinical or economic outcomes, availability, price and services provided by the manufacturer.

We face competition globally from a wide range of companies, some of which may have greater resources than us, which may enable them to adapt faster than us to customer needs or changes in customer requirements.

Product introductions, alternative products or enhancements by competitors that provide better features, clinical outcomes or economic value and/or offer lower pricing may make our products or proposed products obsolete or less competitive.

In addition, the trend of consolidation in the medical device industry and among our customers could result in greater competition and pricing pressures.

As a result, we engage in product development and improvement programs to maintain and improve our competitive position.

These development and improvement programs involve significant investment in research and development, clinical trials and regulatory approvals and may require more time than anticipated to bring such products to market.

We may not, however, be successful in enhancing existing products or developing new products or technologies that will achieve regulatory approval, be developed or manufactured in a cost effective manner, obtain appropriate intellectual property protection or receive market acceptance and we may be unable to recover all or a meaningful part of our investment in such products or technologies.

Our competitors may succeed in adapting faster than us to changing customer needs or requirements, in developing and introducing technologies and products earlier, in obtaining patent protection (which could create barriers to market entry for us) or regulatory clearance earlier, or in commercializing new products or technologies more rapidly than us.

Our competitors may also develop products and technologies that are superior to ours or that otherwise could render our products obsolete or noncompetitive.

The trend of increased consolidation in the medical technology industry has resulted in companies with greater scale and market power, intensifying competition and increasing pricing pressure.

We may also face competition from providers of other medical therapies, such as pharmaceutical companies, that may offer non-surgical therapies for conditions that are currently, or in the future may be, treated using our products.

If we are not able to compete effectively, our market share and revenue may decline.

In addition, the increasing purchasing power of health systems, group purchasing organizations (“GPOs”) and integrated health delivery networks (“IDNs”), together with increased competition and declining reimbursement rates, has resulted increasingly with the Company competing on the basis of price.

Due to the highly competitive nature of the GPO and IDN contracting processes, we may not be able to obtain market prices for our products or obtain or maintain contract positions with major GPOs and IDNs, which could adversely impact our profitability.

Also, sales through a GPO or IDN can be significant to our business and our inability to retain contracts with our customers, or acquire additional contracts, could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Our inability to continue to effectively develop, acquire and/or market new products and technologies could have a material adverse effect on our business, financial condition and/or results of operations.

The market for our devices is characterized by rapid technological change, new product introductions, technological improvements, changes in physician requirements and evolving industry standards.

Product life cycles are relatively short because medical device manufacturers continually develop more effective and less expensive versions of existing devices in response to physician demand.

We engage in product development and improvement programs to maintain and improve our competitive position.

Our products are technologically complex and these programs involve significant planning, market studies, investment in research and development, clinical trials and regulatory clearances or approvals and may require more time and expense than anticipated to bring such products to market.

We may not, however, be successful in enhancing existing products, or developing new products or technologies that will achieve regulatory approval, be developed or manufactured in a cost-effective manner, obtain appropriate intellectual property protection or receive market acceptance.

We also may be unable to recover all or a meaningful part of our investment in these products or technologies.

Additionally, there can be no assurance that the size of the markets in which we compete will increase above existing levels or not decline, that we will be able to maintain, gain or regain market share or that we can compete effectively on the basis of price or that the number of procedures in which our products are used will increase above existing levels or not decline.

As part of our business strategy, we also pursue the acquisition of complementary businesses, technologies and products.

We may not be able to identify appropriate acquisition candidates, consummate transactions or obtain agreements with favorable terms.

Further, once a business is acquired, any inability to successfully integrate the business, decreases in customer loyalty or product orders, failure to retain and develop its workforce, failure to establish and maintain appropriate controls or unknown or contingent liabilities could adversely affect our ability to realize the anticipated benefits of any acquisition.

The integration of an acquired business, whether or not successful, requires significant efforts which may result in additional expenses and divert the attention of our management and technical personnel from other projects.

These transactions are inherently risky, and there can be no assurance that any past or future transaction will be successful.

If we fail to develop and successfully manufacture and launch new products, generate satisfactory clinical results, provide sufficient economic value, enhance existing products, or identify, acquire and integrate complementary businesses, technologies and products or if we experience a decrease in market size or market share or declines in average selling price or procedural volumes, or otherwise fail to compete effectively, our business, results of operations and/or financial condition could be adversely affected.

If we are not able to successfully execute our business development strategies our business and prospects could be materially impacted.

We expect to continue to engage in business development activities including evaluating acquisitions, technology licensing arrangements and other opportunities.

These activities may result in substantial investment of our time and financial resources.

Our success developing products or expanding into new markets from such activities will depend on a number of factors, including our ability to find suitable opportunities for acquisition or investment;

competition from competitors seeking similar opportunities;

whether we are able to negotiate terms that are satisfactory to us or at all;

and our ability to successfully integrate the acquired company, business, product, technology or research into our existing operations, including the ability to adequately fund acquired in-process R&D projects and to maintain adequate controls over the combined operations.

If we are unsuccessful in our business development activities, we may not be able to achieve our growth goals or we may incur significantly more expenses than we anticipate.

In particular, the future prospects of many of our high growth products, such as the NanoKnife system, the AngioVac system and the Auryon system, rely on continued market development and continued generation of clinical data pursuant to clinical trials conducted by us, our competitors or other third parties.

If the results of these trials are not what we expect or fail to generate meaningful clinical data, it may adversely impact our ability to obtain product approvals.

If any of these products fail to achieve clinical acceptance or are perceived unfavorably by the market, it could severely limit our ability to drive revenue growth, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

See Risk Factor titled “Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including our NanoKnife DIRECT Clinical study, our Auryon Pathfinder study and clinical studies for AngioVac.

We may choose to, or may be required to, suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.”

As part of our business strategy, we expect to continue to engage in business development activities which includes selectively evaluating and pursuing the acquisition of complementary businesses, technologies and products.

These activities may result in substantial investment of our time and financial resources and competition for targets may be significant.

We may not be able to identify appropriate acquisition candidates, consummate transactions, obtain agreements with favorable terms or obtain any necessary financing or regulatory approvals.

Further, once a business is acquired, any inability to successfully integrate the business or achieve anticipated cost savings or operating synergies, decreases in customer loyalty or product orders, failure to retain and develop its workforce, failure to establish and maintain appropriate controls, higher or unanticipated expenses, or unknown or contingent liabilities could adversely affect our ability to realize the anticipated benefits of any acquisition.

The evaluation and integration of an acquired business, whether or not successful, requires significant efforts which may result in additional expenses and divert the attention of our management and technical personnel from other projects.

If we proceed with one or more significant acquisitions in which the consideration consists of cash, a substantial portion of our available cash could be used to consummate the acquisitions.

If we consummate one or more acquisitions in which the consideration consists of capital stock, our stockholders could suffer significant dilution of their interest in us.

In addition, we could incur or assume significant amounts of indebtedness in connection with acquisitions.

These transactions are inherently risky and may not enhance our financial position or results of operations or create value for our shareholders as they are based on projections and assumptions which are uncertain and subject to change and there can be no assurance that any past or future transaction will be successful.

If we fail to develop and successfully manufacture and launch new products, generate satisfactory clinical results, provide sufficient economic value, enhance existing products, or identify, acquire and integrate complementary businesses, technologies and products or if we experience a decrease in market size or market share or declines in average selling price or procedural volumes, or otherwise fail to compete effectively, we may not achieve our growth goals, which could have a material adverse effect on our business, financial condition and/or results of operations.

If we do not maintain our reputation with interventional physicians, interventional and surgical oncologists and critical care nurses our growth will be limited and our business could be harmed.

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We believe that we have built a positive reputation based on the quality of our products, our physician-driven product development efforts, our marketing and training efforts and our presence at medical society meetings.

If we fail to develop or market new products and enhance existing products, we could lose market share to our competitors and our results of operations could suffer.

The market for interventional devices is characterized by rapid technological change, new product introductions, technological improvements, changes in physician requirements and evolving industry standards.

To be successful, we must continue to develop and commercialize new products and to enhance versions of our existing products.

Our products are technologically complex and require significant research, planning, design, development and testing before they may be marketed.

This process generally takes at least 12 to 18 months from initial concept and may take up to several years.

In addition, product life cycles are relatively short because medical device manufacturers continually develop smaller, more effective and less expensive versions of existing devices in response to physician demand.

Our success in developing and commercializing new and enhanced versions of our products is affected by our ability to:

• recruit engineers;

• timely and accurately identify new market trends;

• accurately assess customer needs;

• minimize the time and costs required to obtain regulatory clearance or approval;

• adopt competitive pricing;

• timely manufacture and deliver products;

• accurately predict and control costs associated with the development, manufacturing and support of our products;

• anticipate and compete effectively with our competitors’ efforts.

Market acceptance of our products depends in part on our ability to demonstrate that our products are cost-effective and easier to use, as well as offer technological advantages.

Additionally, we may experience design, manufacturing, marketing or other difficulties that could delay or prevent our development, introduction or marketing of new products or new versions of our existing products.

As a result of such difficulties and delays, our development expenses may increase and, as a consequence, our results of operations could suffer.

Development and sales of our products are dependent on a number of factors beyond our control, and our inability to make and complete research and development investments, enhance the product development process and be innovative to solve customer needs with respect to the respective products may adversely affect our business, financial condition and results of operations.

A significant aspect of our growth strategy is the continued market development of products including NanoKnife, AngioVac, Auryon and BioFlo products.

There can be no guarantee that we will be able to develop and manufacture additional next generation or updated products on commercially favorable terms, or at all.

NanoKnife, AngioVac and Auryon are developing technologies and the inability of any of them to achieve clinical acceptance, as well as our inability to generate meaningful clinical data to convince providers of the clinical and economic benefits of our BioFlo platform, could severely limit our ability to drive revenue growth.

The future prospects of many of our high growth products, such as NanoKnife, AngioVac and Auryon, rely on continued generation of clinical data pursuant to clinical trials conducted by us, our competitors or other third parties.

If the results of these trials are not what we expect, or are perceived as unfavorable by the market, our business could be materially harmed.

As a part of the market development and regulatory process of obtaining marketing clearance for new products and new indications for existing products, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial endpoints.

Negative, unexpected or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the market's or regulators’ negative perception of this clinical data, may adversely impact our ability to obtain product approvals and successfully market our products and our business, financial condition, results of operations or future prospects may be materially impacted.

Our business and prospects depend heavily on NanoKnife, which is currently approved for the surgical ablation of soft tissue.

If we are unable to secure expanded specific regulatory approvals for NanoKnife, our business and prospects may be materially harmed.

Any actual or perceived diminution in the quality of our products, or our failure or inability to maintain these other efforts, could damage our reputation with interventional physicians and cause our growth to be limited and our business to be harmed, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Our business and prospects depend heavily on the NanoKnife system, which is currently approved for the surgical ablation of soft tissue.

If we are unable to secure expanded specific regulatory approvals for the NanoKnife system, our business and prospects may be materially harmed.

Our NanoKnife System is indicated for the surgical ablation of soft tissue.

The long-term prospects for our NanoKnife business may rely on securing expanded indications for specific disease states and treatments.

Based on our current indication, our ability to promote NanoKnife and provide training with respect to the use of NanoKnife is limited to the surgical ablation of soft tissue.

In the fourth quarter of our fiscal year ended May 31, 2019, we received approval from the FDA to initiate our DIRECT clinical trial to study the use of NanoKnife for the treatment of Stage III pancreatic cancer.

If we are not able to successfully complete this trial and secure clearances or approvals for expanded indications for our NanoKnife System, including for the treatment of Stage III pancreatic cancer, or if expanded indications are significantly delayed or limited, our business and prospects may be materially harmed and we may need to delay our initiatives or even significantly curtail operations.

Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including our NanoKnife DIRECT Clinical study, our Auryon Pathfinder study and clinical studies for AngioVac.

Based on our current indication, our ability to promote the NanoKnife system and provide training with respect to the use of the NanoKnife system is limited to the surgical ablation of soft tissue.

In the fourth quarter of our 2019, we received approval from the FDA to initiate our DIRECT clinical trial to study the use of the NanoKnife system for the treatment of Stage III pancreatic cancer.

If we are not able to successfully complete this trial and secure clearances or approvals for expanded indications for our NanoKnife system, including for the treatment of Stage III pancreatic cancer, or if expanded indications are significantly delayed or limited, our business and prospects may be materially harmed and we may need to delay our initiatives or even significantly curtail

operations, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including, but not limited to, our NanoKnife DIRECT clinical study, our NanoKnife PRESERVE clinical study, our Auryon Pathfinder study and clinical studies for AngioVac.

Clinical trials must be conducted in accordance with the applicable laws and regulations in the jurisdictions in which the clinical trials are conducted, including FDA’s current Good Clinical Practices.

The clinical trials are subject to oversight by the

FDA, regulatory agencies in other jurisdictions, ethics committees and institutional review boards at the medical institutions where the clinical trials are conducted.

The clinical trials are subject to oversight by the FDA, regulatory agencies in other jurisdictions, ethics committees and institutional review boards at the medical institutions where the clinical trials are conducted.

Clinical trial protocols may require a large number of patients to be enrolled in the trials.

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Clinical trials may be suspended by the FDA or by a regulatory agency in another jurisdiction at any time if the FDA or the regulatory agency finds deficiencies in the conduct of these trials or it is believed that these trials expose patients to unacceptable health risks.

We, the FDA or regulatory agencies in other jurisdictions might delay or terminate our clinical trials for various reasons, including:

• Enrolled patients may have unforeseen adverse side effects;

• New therapies may become the standard of care while we are conducting our clinical trials, which may require us to revise or amend our clinical trial protocols or terminate a clinical trial;

• Fatalities may occur during a clinical trial due to medical problems that may or may not be related to clinical trial treatments;

• Patient enrollment in the clinical trials may be insufficient or significantly delayed.

Patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive follow-up to assess the safety and effectiveness of NanoKnife treatments, or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts.

Patients may also not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competing products.

In addition, the inclusion of critically ill patients in our clinical trials may result in deaths or other adverse medical events for reasons that may not be related to the clinical trial.

We, the FDA or regulatory agencies in other jurisdictions might delay or terminate our clinical trials for various reasons, including insufficient patient enrollment, fatalities, unforeseen adverse side effects by enrolled patients or the development of new therapies that require us to revise or amend our clinical trial protocols.

Patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive follow-up to assess safety and effectiveness, if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts or if they participate in contemporaneous clinical trials of competing products.

In addition, we rely on contract research organizations, or CROs, with respect to conducting our clinical trials.

We may experience significant cost overruns associated with, and we may encounter difficulties managing, these CROs.

Termination of our clinical trials or significant delays in completing our clinical trials could have a materially negative impact on our financial condition and prospects.

We, our competitors or other third parties, may engage in clinical trials with respect to our products.

The results of these trials may be unfavorable, or perceived as unfavorable by the market, and could have a material adverse effect on our business, financial condition or results of operations.

Our products may be the subject of clinical trials conducted by us, our competitors or third parties for the purposes of obtaining regulatory clearances or to gather market data.

Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the FDA's or the market's perception of this clinical data, may adversely impact our ability to obtain product approvals, our position in, and share of, the markets in which we participate and our business, financial condition, results of operations or future prospects.

Undetected defects may increase our costs and impair the market acceptance of our products.

Our products have occasionally contained, and may in the future contain, undetected defects.

When these problems occur, we must divert the attention of our engineering personnel to address them.

There is no assurance that we will not incur warranty or repair costs, be subject to liability claims for damages related to product defects, or experience manufacturing, shipping or other delays or interruptions as a result of these defects in the future.

Our insurance policies may not provide sufficient protection should a claim be asserted.

In addition, the occurrence of defects may result in significant customer relations problems and injury to our reputation, and may impair market acceptance of our products.

If we are unable to convince customers that our products can improve the cost structure of their business, our revenue growth and profitability may be materially adversely impacted.

Worldwide initiatives to contain healthcare costs have led government and the private sector to enact cost containment efforts as a means of managing the growth of health care utilization.

Termination of our clinical trials or significant delays in completing our clinical trials could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

If we are unable to convince customers that our products can improve the cost structure of their business, our revenue growth and profitability may be materially and adversely impacted.

Worldwide initiatives to contain healthcare costs have led governments and the private sector to enact cost containment efforts as a means of managing the growth of health care utilization.

Common techniques include policies on price regulation, competitive pricing, bidding and tender mechanics, coverage and payment, comparative effectiveness of therapies, technology assessments, and managed-care arrangements.

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Government programs, including Medicare and Medicaid, private health care insurance, and managed-care plans have attempted to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement to outcomes, shifting to population health management, and other mechanisms designed to constrain utilization and contain costs.

Simultaneously, hospitals are

redefining their role in health care delivery as many assume much more risk and control of the total cost of patient care.

To successfully make this transformation, health systems are consolidating, purchasing or partnering with physicians, post-acute care providers, while also narrowing networks thus allowing greater control over outcomes.

Today, many systems are becoming ‘mini’ payer/provider organizations.

These newly redesigned health systems are creating mechanisms such as value analysis and centralized purchasing functions that set pricing and in some cases limit the number of vendors that can participate in the purchasing program.

Hospitals are also aligning interests with physicians through employment and other arrangements, such as gainsharing, where a hospital agrees with physicians to share any realized cost savings resulting from the physicians’ collective change in practice patterns such as standardization of devices where medically appropriate.

This has created an increasing level of price sensitivity among customers for our products.

Some third-party payers must also approve coverage and set reimbursement levels for new or innovative devices or therapies before they will reimburse health care providers who use the medical devices or therapies.

Even though a new medical device may have been cleared for commercial distribution, we may find limited demand for the device until coverage and sufficient reimbursement levels have been obtained from governmental and private third-party payers.

In addition, some private third-party payers require that certain procedures or that the use of certain products be authorized in advance as a condition of reimbursement.

International examples of cost containment initiatives and health care reforms advancing clinical outcomes as the key to market access are emerging in France, Germany, the Netherlands and the UK.

This new criteria can severely restrict coverage, reduce reimbursement and delay access to key markets with requirements for incremental clinical benefit and coverage with evidence development.

Cost-containment efforts of group purchasing organizations could adversely affect our selling prices, financial position and results of operations.

Many of our existing and potential customers have become members of group purchasing organizations, or GPOs, and integrated delivery network, or IDNs, in an effort to reduce costs.

GPOs and IDNs negotiate pricing arrangements with healthcare product manufacturers and distributors and offer the negotiated prices to affiliated hospitals and other members.

GPOs and IDNs typically award contracts on a category-by-category basis through a competitive bidding process.

Bids are generally solicited from multiple manufacturers with the intention of driving down pricing.

Also, sales through a GPO or IDN can be significant to our business and if we are unable to retain contracts with our customers, or acquire additional contracts, our financial results may be negatively impacted.

Simultaneously, hospitals are redefining their role in health care delivery as many assume much more risk and control of the total cost of patient care.

To successfully make this transformation, health systems are consolidating, purchasing or partnering with physicians and post-acute care providers, while also narrowing networks thus allowing greater control over outcomes.

This has created an increasing level of price sensitivity among customers for our products and could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

We are dependent on single and limited source suppliers which subjects our business and results of operations to risks of supplier business interruptions.

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Any transition to alternate suppliers may result in production delays and increased costs and may limit our ability to deliver products to our customers.

Furthermore, if we are unable to identify alternative sources of supply, we would have to modify our products to use substitute components, which may cause delays in shipments, increased design and manufacturing costs and increased prices for our products.

Furthermore, if we are unable to identify alternative sources of supply, we would have to modify our products to use substitute components, which may cause delays in shipments, backlogs, increased prices for our products or increased design and manufacturing costs.

In addition, we purchase certain products as a distributor for the manufacturer of those products.

Operational, quality or regulatory issues of the manufacturers of the products we distribute could constrain or interrupt the availability of those products or services.

Any constraint or interruption in the supply of finished products that we distribute could have a material adverse effect on our ability to sell products, our financial condition and our results of operations.

We are heavily dependent on third-party distributors to generate a substantial portion of international revenues and are at the risk of these distributors also selling for our competitors along with being financially viable to be able to effectively distribute our products and make timely payment.

Outside of North America we rely heavily on third party distributors, either on a country-by-country basis or on a multi-country, regional basis, to market, sell and distribute our products.

Any constraint or interruption in the supply of finished products that we distribute could materially impact our ability to sell products, and have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

We are heavily dependent on third-party distributors to generate a substantial portion of our international revenues and are at the risk of these distributors also selling for our competitors, failing to be financially viable and failing to effectively distribute our products in compliance with applicable laws.

Outside of North America we rely heavily on third party distributors, either on a country-by-country basis or on a multi-country, regional basis, to market, sell and distribute our products where we do not have a direct sales and marketing presence (including, among others, China, Japan, Brazil, the Middle East and many European countries).

As such, our revenue, if any, depends on the terms of such arrangements and the distributors’ efforts.

These efforts may turn out not to be sufficient and our third-party distributors may not effectively sell our products.

International distributors accounted for approximately 64% of international revenues for the fiscal year ended May 31, 2021.

If we are unable to maintain our relationships or establish direct sales capabilities on acceptable terms or at all, we may lose significant revenue or be unable to achieve our growth aspirations.

In certain circumstances, distributors may also sell competing products, or products for competing diagnostic modalities, and may have incentives to shift sales towards those competing products.

As a result, we cannot assure you that our international distributors will increase or maintain our current levels of unit sales or increase or maintain our current unit pricing, which, in turn, could have a material adverse effect on our business,

results of operations, financial condition and cash flows.

In addition, there is a risk that our distributors will not be financially viable due to current economic and/or regulatory events in their respective countries.

We rely on distributors for the commercialization of our products in countries in which we do not have a direct sales and marketing presence.

If we are unable to maintain our relationships or establish direct sales capabilities, our sales may significantly decline, materially impacting our financial position and results of operations.

We have no or limited direct sales or marketing capabilities in some of the regions and countries in which our products are sold, including, among others, China, Japan, Brazil, the Middle East and many European countries.

We have entered into distribution agreements with third parties to market and sell our products in those countries in which we do not have a direct sales force.

If we are unable to maintain or enter into such distribution arrangements on acceptable terms, or at all, we may lose significant revenue or be unable to achieve our growth aspirations.

Moreover, to the extent that we enter into distribution arrangements with other companies, our revenues, if any, will depend on the terms of any such arrangements and the efforts of others.

These efforts may turn out not to be sufficient and our third-party distributors may not effectively sell our products.

In addition, although our contract terms require our distributors to comply with all applicable laws regarding the sale of our products, including anti-competition, anti-corruption, anti-money laundering and sanctions laws, we may not be able to ensure proper compliance.

If our distributors fail to effectively market and sell our products in full compliance with applicable laws, our financial position and results of operations could be materially impacted.

In addition, there is a risk that our distributors will not be financially viable due to current economic and/or regulatory events in their respective countries or remit payments to us in a timely manner.

If our distributors fail to comply with applicable laws or fail to effectively market and sell our products, our financial condition and results of operations could be materially and adversely impacted.

Failure to secure adequate reimbursement for our products could materially impair our ability to grow revenue and drive profitability.

Our products are used in medical procedures generally covered by government or private health plans.

Our products are used in medical procedures and purchased principally by hospitals or physicians which typically bill various third-party payors, such as governmental programs (e.g., Medicare, Medicaid and comparable foreign programs), private insurance plans and managed care plans, for the healthcare services provided to their patients.

The ability of our customers to obtain appropriate reimbursement for products and services from third-party payors is critical to the success of medical device companies because it affects which products customers purchase and the prices they are willing to pay.

In general, a third-party payor only covers a medical product or procedure when the plan administrator is satisfied that the product or procedure improves health outcomes, including quality of life or functional ability, in a safe and cost-effective manner.

Even if a device has received clearance or approval for marketing by the FDA, there is no assurance that third-party payors will cover the cost of the device and related procedures.

In many instances, third-party payors use price schedules that do not vary to reflect the cost of the products and equipment used in performing those procedures.

In other instances, payment or reimbursement is separately available for the products and equipment used, in addition to payment or reimbursement for the procedure itself.

Even if a device has received clearance or approval for marketing by the FDA, there is no assurance that third-party payors, including Medicare and managed care companies, will cover the cost of the device and related procedures.

Even if coverage is available, third-party payors may place restrictions on the circumstances where they provide coverage or may offer reimbursement that is not sufficient to cover the cost of our products.

Third-party payors who cover the cost of medical products or equipment, in addition to allowing a general charge for the procedure, often maintain lists of exclusive suppliers or approved lists of products deemed to be cost-effective.

Authorization from those third-party payors is required prior to using products that are not on these lists as a condition of reimbursement.

If our products are not on the approved lists, healthcare providers must determine if the additional cost and effort required in obtaining prior authorization, and the uncertainty of actually obtaining coverage, is justified by any perceived clinical benefits from using our products.

If our products are not on approved lists of third-party payors, healthcare providers must determine if the additional cost and effort required in obtaining prior authorization, and the uncertainty of actually obtaining coverage, is justified by any perceived clinical benefits from using our products.

Finally, the advent of contracted fixed rates per procedure has made it difficult to receive reimbursement for disposable products, even if the use of these products improves clinical outcomes.

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Under current prospective payment systems, such as the diagnosis related group system and the hospital out-patient prospective payment system, both of which are used by Medicare and in many managed care systems used by private third-party payors, the cost of our products will be incorporated into the overall cost of a procedure and not be separately reimbursed.

As a result, we cannot be certain that hospital administrators and physicians will purchase our products, despite the clinical benefits and opportunity for cost savings that we believe can be derived from their use.

If hospitals and physicians cannot obtain adequate reimbursement for our products or the procedures in which they are used, our business, financial condition, results of operations, and cash flows could suffer a material adverse impact.

Our success in international markets will depend largely upon the availability of reimbursement from the third-party payors through which healthcare providers are paid in those markets.

Reimbursement and healthcare payment systems vary significantly by country.

The main types of healthcare payment systems are government sponsored healthcare and private insurance.

Reimbursement approval must be obtained individually in each country in which our products are marketed.

Outside the United States, we generally rely on our distributors to obtain reimbursement approval in the countries in which they will sell our products.

There can be no assurance that reimbursement approvals will be received.

The failure to secure reimbursement approvals in international markets could materially impact our financial position and results of operations.

If hospitals and physicians cannot obtain adequate reimbursement for our products or the procedures in which they are used, this could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Reimbursement varies by country and can significantly impact the acceptance of new technology.

Implementation of healthcare reforms in the United States and in other countries may limit, reduce or eliminate reimbursement for our products and adversely affect both our pricing flexibility and the demand for our products.

Even when we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors.

Changes in healthcare systems in the United States or elsewhere in a manner that significantly reduces

reimbursement for procedures using our medical devices or denies coverage for these procedures, or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.

If a product liability claim is brought against us or our product liability insurance coverage is inadequate, our business could be harmed.

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Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing any coverage in the future.

Additionally, if one or more product liability claims is brought against us for uninsured liabilities or is in excess of our insurance coverage, our financial condition and results of operations could be negatively impacted.

Further, such claims may require us to recall some of our products, which could result in significant costs to us and could divert management’s attention from our business.

We may be exposed to risks associated with acquisitions, including integration risks and risks associated with methods of financing.

Accordingly, completed acquisitions may not enhance our financial position or results of operations or create value for our shareholders as they are based on projections and assumptions which are uncertain and subject to change.

Part of our growth strategy is to acquire businesses and technologies that are complementary to ours.

There is no assurance that acquisition opportunities will be available on acceptable terms, or at all, or that we will be able to obtain necessary financing or regulatory approvals.

Any acquisitions that we do undertake would be accompanied by the risks commonly encountered in acquisitions, including the:

• potential disruption of our business while we evaluate opportunities, complete acquisitions and develop and implement new business strategies to take advantage of these opportunities;

• inability of our management to maximize our financial and strategic position by incorporating an acquired technology or business into our existing offerings;

• inability to achieve the cost savings and operating synergies anticipated in the acquisition, which would prevent us from achieving the positive earnings gains expected as a result of the acquisition;

• diversion of management attention from ongoing business concerns to integration matters;

• difficulty of maintaining uniform standards, controls, procedures and policies;

• challenges in demonstrating to our customers that the acquisition will not result in adverse changes in customer service standards or business focus;

• possible cash flow interruption or loss of revenue as a result of change of ownership transition matters;

• difficulty of assimilating the operations and personnel of acquired businesses;

• potential loss of key employees of acquired businesses, and the impairment of relationships with employees and customers as a result of changes in management;

• uncertainty as to the long-term success of any acquisitions we may make including the impact on contingent liabilities.

There is no assurance that any completed acquisition will be accretive to our margins or profits in the short term or in the long term.

If we proceed with one or more significant acquisitions in which the consideration consists of cash, a substantial portion of our available cash could be used to consummate the acquisitions.

If we consummate one or more acquisitions in which the consideration consists of capital stock, our stockholders could suffer significant dilution of their interest in us.

In addition, we could incur or assume significant amounts of indebtedness in connection with acquisitions.

Further, acquisitions could also result in significant goodwill and/or amortization charges for acquired businesses or technologies.

Failure to attract additional capital which we may require to expand our business could curtail our growth.

We may require additional capital to expand our business.

If cash generated internally is insufficient to fund capital requirements, we will require additional debt or equity financing.

In addition, we may require financing to fund any significant

acquisitions we may seek to make.

Needed financing may not be available or, if available, may not be available on terms satisfactory to us and may result in significant stockholder dilution.

Covenants in our existing financing agreements may also restrict our ability to obtain additional debt financing.

If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our growth strategy by reducing or delaying capital expenditures and acquisitions, selling assets, restructuring our operations or refinancing our indebtedness.

We may never realize the expected benefits from the divestiture of our Fluid Management business.

In addition, the divestiture of our Fluid Management business entails significant personnel, systems and infrastructure changes that could cause operational disruptions.

The divestiture of our Fluid Management business is part of a strategy to transform ourselves into a high growth, highly profitable, medical technology company.

If we are unable to achieve our growth and profitability objectives due to competition, lack of acceptance of our products, failure to generate favorable clinical data or gain regulatory approvals, or other risks as described in this section, or due to other events, we will not be successful in transforming our business and may not see the appropriate market valuation.

Moreover, our Fluid Management business generated substantial revenue, earnings and cash flow, which we have not replaced.

While over time we expect to replace this revenue and cash flow by investing in, acquiring and accelerating higher margin revenue streams, there is a risk we will be unable to replace the revenue, earnings and cash flow that our Fluid Management business generated, or that the cost of such will be higher than expected.

If we are unable to achieve our profit and growth objectives, such failure will be exacerbated by the loss of revenue, earnings and cash flow generated by our divested Fluid Management business, and could materially impact our financial position and results of operations, resulting in a decline in our stock price.

The sale of our Fluid Management business required us to restructure significant personnel, systems and infrastructure.

As part of this process, many long-term employees with valuable institutional knowledge were transitioned to Medline, and key systems were replicated or relocated across both companies.

In some instances, existing processes and systems could not be fully replicated, requiring that we enter into short term transition service arrangements with Medline, and vice versa, under which the parties perform certain services for each other pending establishment of new processes and systems.

Although these transitions were thoroughly planned, it is not unlikely in a transaction of this complexity that disruptions could occur.

If disruptions to our financial controls, IT, administrative support, manufacturing or regulatory processes occur, and if such disruptions prove to be more severe than our planning anticipated, this could have a material adverse effect on our business.

Additionally, if one or more product liability claims is brought against us for uninsured liabilities or is in excess of our insurance coverage, our financial condition, results of operations and/or liquidity could be negatively impacted.

Further, such claims may require us to recall some of our products, which could result in significant costs to us.

International and national economic and industry conditions constantly change, and could materially and adversely affect our business, financial condition and results of operations.

Our business, financial condition and results of operation are affected by many changing economic, industry and other conditions beyond our control.

Actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, inflation and trade protection measures, may negatively affect consumer preferences, perceptions, spending patterns or demographic trends, any of which could adversely affect our business, financial condition or results of operations.

Our customers may experience financial difficulties or be unable to borrow money to fund their operations, which may adversely impact their ability or decision to purchase or pay for our products.

Disruptions in the credit markets have previously resulted, and could again result, in volatility, decreased liquidity, widening of credit spreads, and reduced availability of financing.

There can be no assurance that future financing will be available to us on acceptable terms, if at all.

An inability to obtain necessary additional financing on acceptable terms may have an adverse impact on us and on our ability to execute on our business plan.

We are subject to a variety of market and financial risks due to our international operations that could adversely affect those operations or our profitability and operating results.

Our stock is traded on the NASDAQ Global Select Market and we are a global Company.

Operations in countries outside of the U.S., which account for approximately 21% percent of our net sales for the fiscal year ended May 31, 2020, are accompanied by certain financial and other risks that would not be faced by a company operating purely within the U.S.

We intend to continue to pursue growth opportunities in sales outside the U.S., especially in emerging markets, which could expose us to greater risks associated with international sales and operations.

Our profitability and international operations are, and will continue to be, subject to a number of risks and potential costs, including:

• fluctuations in currency exchange rates;

Actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, inflation and trade protection measures, creditworthiness of our customers, may negatively affect consumer preferences, perceptions, spending patterns or demographic trends, any of which could adversely affect our business, financial condition, results of operations and/or liquidity.

We are subject to macro-economic fluctuations in the U.S.

and worldwide economy.

Concerns about consumer and investor confidence, volatile corporate profits and reduced capital spending, international conflicts, terrorist and military activity, civil unrest and pandemic illness could reduce customer orders or cause customer order cancellations.

In addition, political and social turmoil may put further pressure on economic conditions in the United States and abroad.

The global economy has been periodically impacted by the effects of global economic downturns (such as recently related to COVID-19).

There can be no assurance that there will not be further such events or deterioration in the global economy.

These economic conditions make it more difficult for us to accurately forecast and plan our future business activities.

Sales outside the U.S.

accounted for approximately 19% of our net sales during our fiscal year ended May 31, 2021.

We anticipate that sales from international operations will continue to represent a significant portion of our total sales, and we intend to continue our expansion into emerging and/or faster-growing markets outside the U.S.

Our sales and profitability from our international operations are subject to risks and uncertainties that could have a material adverse effect on our business, financial condition and/or results of operations, many of which we cannot predict, including:

• fluctuations in currency exchange rates which may, in some instances affect spending behavior and reduce cash flows and revenue outside the U.S.;

• healthcare reform legislation;

• multiple non-U.S.

regulatory requirement that are subject to change and could restrict our ability to manufacture and sell our products;

regulatory requirements that are subject to change and could restrict our ability to manufacture and sell our products;

• local product preferences and product requirements;

• longer-term receivables than are typical in the U.S.

and/or the ability to obtain payment;

• trade protection measures and import or export licensing requirements;

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• different labor regulations and workforce instability;

• political instability;

• the potential payment of U.S.

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• the expiration and non-renewal of foreign tax rulings;

• potential negative consequences from changes in or interpretation of tax laws;

• potential negative consequences from changes in or interpretation of tax laws, including changes in our effective tax rate or the applicable tax rate in one or more jurisdictions;

• economic instability and inflation, recession or interest rate fluctuations.

• the United Kingdom’s exit from the European Union (EU) (commonly referred to as “Brexit”) on January 31, 2020.

There are recent legislative proposals to tax profits of U.S.

affiliates which are earned abroad.

While it is impossible for us to predict whether these and other proposals will be implemented, or how they will ultimately impact us, they may materially impact our results of operations if, for example, our profits earned abroad are subject to U.S.

income tax, or we are otherwise disallowed deductions as a result of these profits.

Finally, changes in currency exchange rates may reduce the reported value of our revenues outside the U.S, net of expenses, and cash flows.

We cannot predict changes in currency exchange rates, the impact of exchange rate changes, nor the degree to which we will be able to manage the impact of currency exchange rate changes.

The United Kingdom’s departure from the EU, or Brexit, could adversely affect us.

During June 2016, the U.K.

held a referendum in which voters approved an exit from the EU, commonly referred to as Brexit.

On January 24, 2020, the U.K.

Parliament approved a withdrawal agreement (the “Withdrawal Agreement”) between the U.K.

On January 31, 2020, the U.K.

exited the European Union and under the Withdrawal Agreement, the U.K.

is subject to an eleven-month transition period (the “Transition Period”) by which to leave the single market and customs union.

The uncertainty concerning the U.K.’s legal, political and economic relationship with the EU after the Transition Period could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the British Pound Sterling and Euro, which in turn could adversely affect us or our customers and companies that do business with us.

Such uncertainties could also trigger a general deterioration in credit conditions, a downturn in consumer sentiment and overall negative economic growth.

Any of these scenarios could have an adverse effect on our business or our customers.

and the EU are unable to negotiate acceptable trading and customs terms, barrier-free access between the U.K.

and other EU member states could be diminished or eliminated.

The long-term effects of Brexit will depend on any agreements (or lack thereof) between the U.K.

and the EU and, in particular, any arrangements for the U.K.

to retain access to EU markets after the Transition Period.

Such a withdrawal from the EU is unprecedented, and it is unclear how the U.K.’s access to the European single market for goods, capital, services and labor within the EU and the wider commercial, legal and regulatory environment, will impact our U.K.

In addition, Brexit could lead to legal uncertainty and increased complexity as national laws and regulations in the U.K.

start to diverge from EU laws and regulations.

In particular, depending on the terms of Brexit, we may face new regulatory costs and challenges, including the following:

• if we are unable to utilize appropriate authorizations and regulator permissions, our U.K.

and EU-based operations could lose their ability to offer services on a cross-border basis into the U.K.

market and for our U.K.

based operations to offer services on a cross-border basis in the EU market;

• we could be required to obtain additional regulatory permissions to operate in the U.K.

and EU market, adding costs and potential inconsistency to our business (and, depending on the capacity of the U.K.

authorities, the criteria for obtaining permission, and any possible transitional arrangements, there is a risk that our business in the U.K.

could be materially affected or disrupted);

• we could be required to comply with regulatory requirements in the U.K.

that are in addition to, or inconsistent with, the regulatory requirements of the EU, leading to increased complexity and costs for our EU and U.K.

• our ability to attract and retain the necessary human resources in appropriate locations to support the U.K.

business and the EU business could be adversely impacted.

These and other factors related to Brexit could, individually or in the aggregate, have a material adverse impact on our business, financial condition, and results of operations.

Continuing worldwide economic instability, including challenges faced by the Eurozone countries, could adversely affect our revenues, financial condition or results of operations.

Since fiscal year 2008, the global economy has been impacted by the sequential effects of an ongoing global financial crisis.

There can be no assurance that there will not be further deterioration in the global economy.

Our customers and vendors may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability to purchase our products or to pay for our products on a timely basis, if at all.

As with our customers and vendors, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities.

In addition, trade receivables are in many countries.

Repayment of these receivables is dependent upon the financial stability of the economies of those countries.

In light of these global economic fluctuations, we continue to monitor the creditworthiness of customers located outside the U.S.

Failure to receive payment of all or a significant portion of these receivables could adversely affect our results of operations.

Further, there are concerns for the overall stability and suitability of the Euro as a single currency, given the economic and political challenges facing individual Eurozone countries.

Continuing deterioration in the creditworthiness of the Eurozone countries, the withdrawal of one or more member countries from the EU, or the failure of the Euro as a common European currency could adversely affect our revenues, financial condition or results of operations.

We are exposed to risks associated with worldwide economic slowdowns and related uncertainties.

We are subject to macro-economic fluctuations in the U.S.

and worldwide economy.

For example, the spread of coronavirus may cause adverse impacts on global economic activity which could negatively impact our business.

In addition, political and social turmoil may put further pressure on economic conditions in the United States and abroad.

Our business could be harmed if we lose the services of our key personnel.

In addition, the United Kingdom’s (“UK”) departure from the European Union (“EU”) (commonly known as “Brexit”) has created uncertainties affecting business operations in the UK, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products we sell in these markets.

While we have taken proactive steps to mitigate possible disruption to our operations, we could face increased costs, volatility in exchange rates, market instability and other risks, depending on the effects of existing and future agreements between the UK and EU regarding Brexit and the future EU/UK trading relationship.

Our business could be harmed if we cannot hire or retain qualified personnel.

Our business depends upon our ability to attract and retain highly qualified personnel, including managerial, sales and technical personnel.

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We do not have written employment agreements with our executive officers, other than the CEO.

Our ability to maintain and expand our business may be impaired if we are unable to retain our current key personnel or hire or retain other qualified personnel in the future.

Our ability to maintain and expand our business may be impaired if we are unable to retain our current key personnel or hire or retain other qualified personnel in the future, including personnel for our manufacturing facilities.

If we are not able to hire and retain personnel in our manufacturing facilities, we may not meet our production demand.

In addition, our sales force is highly talented and there is competition in the sales industry which could have an adverse effect on our business if there is significant turnover.

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If integration-related expenses and capital expenditure requirements are greater than anticipated or if we are unable to manage our growth profitably, our financial results and the market price of our common stock may decline.

In recent years we have begun to implement our operational excellence initiatives which include a number of restructuring, realignment and cost reduction initiatives.

While we have realized some efficiencies from these actions, we may not realize the benefits of these initiatives to the extent we anticipated.

Further, such benefits may be realized later than expected, and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions.

In addition, if these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in significant additional charges.

Moreover, if our restructuring and realignment efforts prove ineffective, our ability to achieve our other strategic goals and business plans may be adversely affected.

We may incur indebtedness which could impose operating and financial restrictions on us as a result of debt service obligations which could significantly limit our ability to execute our business strategy.

We may incur indebtedness in the future subject to limitations contained in the agreements governing our debt.

In recent years we have begun to implement operational excellence initiatives which include a number of restructuring, realignment and cost reduction initiatives.

We may not realize the benefits of these initiatives to the extent or on the timing we anticipated and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions.

In addition, if these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in significant additional charges and adversely impact our ability to achieve our other strategic goals and business plans.

We may fail to attract additional capital necessary to expand our business or may incur additional indebtedness which, together with our current indebtedness levels, could impose operating and financial restrictions on us as a result of debt service obligations which could significantly limit our ability to execute our business strategy or curtail our growth.

We may require additional capital to expand our business.

If cash generated internally is insufficient to fund capital requirements, we may require additional debt or equity financing.

In addition, we may require financing to fund any significant acquisitions we may seek to make.

Disruptions in the capital markets have previously resulted, and could again result, in volatility, decreased liquidity, and widening of credit spreads, which could make needed financing either unavailable or available on terms unsatisfactory to us which could result in significant stockholder dilution.

We may incur additional indebtedness or draw additional amounts on our existing credit facilities in the future subject to limitations contained in the agreements governing our debt.

The interest rate on potential borrowings could be a floating rate which could expose us to the risk of increased interest expense in the future.

The terms of a credit facility could require us to comply with certain financial maintenance covenants.

In addition, the terms of our indebtedness could also include certain covenants restricting or limiting our ability to take certain actions.

These covenants could adversely affect our ability to finance future operations or limit our ability to pursue certain business opportunities or take certain corporate actions.

The covenants could also restrict our flexibility in planning for changes in our business and the industry and could make us more vulnerable to economic downturns and adverse developments.

The terms of indebtedness could require us to comply with certain financial maintenance covenants.

In addition, the terms of our existing indebtedness include, and any future indebtedness could include, covenants restricting or limiting our ability to take certain actions.

These covenants could adversely affect our ability to obtain additional financing, to finance future operations, to pursue certain business opportunities or take certain corporate actions.

The covenants could also restrict our flexibility in planning for changes in our business and the industry and could make us more vulnerable to economic downturns and adverse developments, could limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete, could place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt.

Our ability to meet our cash requirements, including our debt service obligations, could be dependent upon our operating performance, which would be subject to general economic and competitive conditions and to financial, business and other factors affecting our operations, many of which could be beyond our control.

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Our failure to generate sufficient operating cash flow to pay our potential debts or to successfully undertake any of these actions could have a material adverse effect on us.

In addition, the degree to which we are leveraged as a result of potential indebtedness incurred in connection with an acquisition or otherwise could materially and adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, could make us more vulnerable to general adverse economic, regulatory and industry conditions, could limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete, could place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt.

Our international sales and operations are subject to risks and uncertainties that vary by country and could have a material adverse effect on our business and/or results of operations.

Sales outside the United States accounted for approximately 21% of our net sales during our fiscal year ended May 31, 2020.

Our sales and profitability from our international operations are subject to risks and uncertainties that can vary by country, and include those related to political and economic conditions, foreign currency exchange rate fluctuations, changes in tax laws, regulatory and reimbursement programs and policies, and the protection of intellectual property rights.

These risks and uncertainties could have a material adverse effect on our business and/or results of operations.

Foreign currency exchange rate may adversely affect our business, financial condition and results of operations.

We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates.

Products manufactured in, and sold into, foreign markets represent a significant portion of our operations.

When the United States dollar strengthens or weakens in relation to the foreign currencies of the countries in which we sell our products, such as the Euro, our United States dollar-reported revenue and income will fluctuate.

The effects of currency rate fluctuations and changes in the relative values of currencies may, in some instances, have a significant effect on our business, financial condition, results of operations and cash flows.

Our goodwill, intangible assets and fixed assets are subject to potential impairment;

A significant portion of our assets consists of goodwill, intangible assets and fixed assets, the carrying value of which may be reduced if we determine that those assets are impaired.

Included in the intangible assets, are intangible assets from the recent acquisitions of Eximo Medical Ltd.

for $60.3 million, BioSentry for $26.0 million, RadiaDyne (OARtrac, IsoLoc® and Alatus® balloons) for $25.6 million and C3 Wave tip location for $9.4 million.

we have recorded significant goodwill impairment charges and may be required to record additional charges to future earnings if our goodwill or intangible assets become impaired.

A significant portion of our assets consists of goodwill, intangible assets and fixed assets, the carrying value of which may be reduced if we determine that those assets are impaired, including intangible assets from recent acquisitions.

During the fourth quarter of fiscal year 2021, the Company made the decision to abandon the OARtrac product technology and trademark.

This resulted in an impairment charge of $14.0 million.

The impairment charge is recorded in "Acquisition, restructuring and other items, net", on the Consolidated Statement of Operations (see Note 19).

Most of our intangible and fixed assets have finite useful lives and are amortized or depreciated over their useful lives on either a straight-line basis or over the expected period of benefit or as revenues are earned from the sales of the related products.

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Whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable we test intangible assets for impairment based on estimates of future cash flows.

Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets and/or goodwill may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations and/or other materially adverse events that have implications on the profitability of our business.

When testing for impairment of definite-lived intangible assets held for use, the Company groups assets at the lowest level for which cash flows are separately identifiable.

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If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.

Goodwill is required to be tested for impairment at least annually.

We review our single reporting unit for potential goodwill impairment in the third fiscal quarter of each year as part of our annual goodwill impairment testing, and more often if an event or circumstance occurs making it likely that impairment exists.

We conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations.

The annual goodwill impairment review performed in December 2020 indicated no goodwill impairments.

As a result of the current economic environment and the impact that the COVID-19 global pandemic has had on the global capital markets and the fact that the Company's market capitalization is below its reporting unit's carrying value as of May 31, 2020, the Company performed an interim test for goodwill impairment as of May 31, 2020.

As a result of the interim impairment test, a $158.6 million goodwill impairment charge was recorded as of May 31, 2020.

If actual results differ from the assumptions and estimates used in the goodwill and intangible asset calculations, we could incur future impairment or amortization charges, which could negatively impact our results of operations.

We have recorded significant goodwill impairment charges and may be required to record additional charges to future earnings if our goodwill or intangible assets become impaired.

We are required under generally accepted accounting principles to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Goodwill is required to be tested for impairment at least annually.

Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets and/or goodwill may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business.

In fiscal year 2020, we recorded a goodwill impairment loss of $158.6 million.

We may be required to record additional charges to earnings during the period in which any impairment of our goodwill or other intangible assets is determined which could adversely impact our results of operations.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

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See Note 10 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021 for a further discussion of our tax loss carryovers.

Fluctuations in our effective tax rate and changes to tax laws may adversely affect us.

As an international company, we are subject to taxation in numerous countries, states and other jurisdictions.

Our effective tax rate is derived from a combination of applicable tax rates in the various countries, states and other jurisdictions in which we operate.

In preparing our financial statements, we estimate the amount of tax that will become payable in each of these jurisdictions.

Our effective tax rate may, however, differ from the estimated amount due to numerous factors, including a change in the mix of our profitability from country to country and changes in tax laws.

Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which could have an adverse effect on our business, financial condition and results of operations and cash flows.

We rely on the proper function, availability and security of information technology systems to operate our business as a cyber-attack or other breach of these systems could have a material adverse effect on our business, financial condition or results of operations.

A cyber-attack or other breach of our information technology systems could have a material adverse effect on our business, financial condition and/or results of operations.

We rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations.

Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to cyber-attacks, malicious intrusions, breakdowns, destructions, losses of data privacy, or other significant disruptions.

Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns.

In addition, third parties may attempt to hack into our products to obtain data relating to patients

with our products or our proprietary information.

Any failure by us to maintain or protect our information technology systems and data integrity, including from cyber-attacks, intrusions or other breaches, could result in the unauthorized access to patient data and personally identifiable information, theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations.

Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition or results of operations.

Any disaster at our manufacturing facilities could disrupt our ability to manufacture our products for a substantial amount of time, which could cause our revenues to decrease.

Our information systems require an ongoing commitment of resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns.

In addition, third parties may attempt to hack into our products to obtain data relating to patients with our products or our proprietary information.

Any failure by us to maintain or protect our information technology systems and data integrity, including from cyber-attacks, ransomware, intrusions or other breaches, could result in the unauthorized access to patient data and personally identifiable information, theft of intellectual property, misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations.

Any disaster at our manufacturing facilities or those of our suppliers could disrupt our ability to manufacture our products for a substantial amount of time.

We conduct our manufacturing and assembly at facilities in Queensbury, New York and Glens Falls, New York.

It would be difficult, expensive and time-consuming to transfer resources from one facility to the other, replace, or repair these facilities and our manufacturing equipment if they were significantly affected by a disaster.

Additionally, we might be forced to rely on third-party manufacturers or to delay production of our products.

It would be difficult, expensive and time-consuming to transfer resources from one facility to the other and/or replace or repair these facilities or manufacturing equipment if they were significantly affected by a disaster.

Additionally, we might be forced to rely on third-party manufacturers or delay production of our products.

Insurance for damage to our properties and the disruption of our business from disasters may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

In addition, if one of our principal suppliers were to experience a similar disaster, uninsured loss or under-insured loss, we might not be able to obtain adequate alternative sources of supplies or products or could face significant delays and incur substantial expense in doing so.

Any significant uninsured loss, prolonged or repeated disruption, or inability to operate experienced by us or any of our principal suppliers could cause significant harm to our business, financial condition and results of operations.

Manufacturing and assembly takes place in Queensbury, New York and Glens Falls, New York.

If we were significantly affected by a disaster, we no longer have an option to transfer manufacturing to another facility so we would be forced to rely on third-party manufacturers or would have to delay production of our products.

If one of our principal suppliers were to experience a similar disaster, uninsured loss or under-insured loss, we might not be able to obtain adequate alternative sources of supplies or products.

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that may enable our management to resist a change in control.

For example, our Board of Directors is classified so that not all members of our Board of Directors are elected at one time and our Board of Directors is authorized, without prior stockholder approval, to create and issue “blank check” preferred stock with rights senior to those of our common stock and stockholder action by written consent is prohibited.

We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock.

These provisions may discourage, delay or prevent a change in the ownership of our Company or a change in our management.

In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock.

Such provisions include:

• Our Board of Directors is authorized, without prior stockholder approval, to create and issue “blank check” preferred stock, with rights senior to those of our common stock;

• Our Board of Directors is classified so that not all members of our Board of Directors are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors;

• Advance notice is required for stockholders to nominate individuals to serve on our Board of Directors or for stockholders to submit proposals that can be acted upon at stockholder meetings;

• Stockholder action by written consent is prohibited;

• Stockholders are not permitted to cumulatively vote for the election of directors.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including delaying or impeding a merger, tender offer or proxy contest involving our Company.

Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline.

We are dependent on the proper functioning of our critical facilities, our supply chain and distribution networks and our sales force as well as the financial stability of our customers, all of which could be negatively impacted by the coronavirus in a manner that could materially adversely affect our business, financial condition or results of operations.

Our ability to manufacture products may be materially adversely impacted by the coronavirus.

The Novel Coronavirus Disease 2019 (COVID-19) (“coronavirus”) is impacting worldwide economic activity.

Estimates for economic growth have been reduced as a result of the coronavirus, which may have a corresponding effect on our sales activity.

The virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to over 100 countries, including the United States.

The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

With the spread of the coronavirus to the United States and other countries, it is unclear how economic activity and work flows might be impacted on a worldwide basis.

Many employers in the United States are requiring their employees to work from home or not come into their offices or facilities.

We manufacture primarily out of one facility in Queensbury, New York, and partially out of a facility in Glens Falls, New York.

If the manufacturing capabilities of these two sites are impacted as a result of the coronavirus, it may not be possible for us to timely manufacture relevant products at required levels or at all.

A reduction or interruption in any of our manufacturing processes could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We also might be unable to obtain products, product components, or sterilized products from our suppliers and vendors due to the additional constraints on suppliers created by the coronavirus.

Any delays in delivery of or shortages in products and components could interrupt and delay manufacturing of our products and result in the cancellation of orders for our products.

Our sales may be materially adversely impacted by the coronavirus .

Our sales force functions by meeting in person with physicians and health care providers to discuss our products.

The coronavirus may negatively affect demand for our products by limiting the ability of our sales personnel to maintain their customary contacts with customers for a period of time.

We may also find that distributors will have to prioritize their work load and may be forced to slow their activities as a result of the coronavirus.

As a result, we cannot assure you that our sales force or distributors will increase or maintain our current levels of unit sales or increase or maintain our current unit pricing, which, in turn, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

In addition, there is a risk that our international distributors will not be financially viable due to the impact of coronavirus in their respective countries.

We may also experience significant and unpredictable reductions in demand for certain products as our health care customers re-prioritize the treatment of patients and divert resources away from non-coronavirus areas.

For example, elective surgeries are being de-prioritized which may negatively impact the usage of certain products, including, without limitation, our EVLT and core products and certain Oncology products.

As a result of coronavirus, our customers and vendors may experience financial difficulties or be unable to borrow money to fund their operations, which may adversely impact their ability to purchase our products or pay for our products on a timely basis, if at all.

The execution of our clinical studies may be materially adversely impacted by the coronavirus.

Our future business prospects are highly dependent on generating, collecting and disseminating data pursuant to clinical trials.

Clinical trials, including, without limitation, our DIRECT Study, studying the use of NanoKnife to treat pancreatic cancer, and our Pathfinder Registry, collecting data on the use of our Atherectomy laser, may be materially impacted by the coronavirus as hospitals prioritize treating coronavirus patients and creating capacity.

Delays in the initiation of sites or enrollment of patients in these and other clinical studies, may have a material adverse effect on our results of operations and future business prospects.

Our ability to raise capital may be materially adversely impacted by the coronavirus.

Any sustained disruption in the capital markets from the COVID-19 pandemic could negatively impact our ability to raise capital.

As of the end of our fiscal year ended May 31, 2020 we have a strong balance sheet and do not anticipate the need to raise additional capital.

However, we cannot predict when the macro-economic disruption stemming from the coronavirus will ebb or when the economy will return to pre-coronavirus levels, if at all.

If the macro-economic disruption continues for pro-longed periods we may need to raise additional capital and capital may not be available on acceptable terms, or at all.

The impact of the coronavirus on economic activity, and its effect on our manufacturing facility, supply chain and distribution networks, our sales force and our customers are uncertain at this time and could have a material adverse effect on our results, especially to the extent these effects persist or exacerbate over an extended period of time.

The COVID-19 pandemic has negatively impacted our business and operations around the world and may continue to materially and adversely impact our business, operations and financial results.

The COVID-19 pandemic has created significant disruption and uncertainty in the global economy, has negatively impacted our business, results of operations and financial condition, and we anticipate that it may continue to negatively impact our business, results of operations and financial condition for the foreseeable future.

Numerous national, international, state and local jurisdictions have imposed, and others in the future may impose, a variety of government orders and restrictions for their residents to control the spread of COVID-19.

Such orders or restrictions may cause significant alteration of our operations, work stoppages, slowdowns and delays, travel restrictions and event cancellations, among other effects, thereby significantly and negatively impacting our operations.

Other disruptions or potential

disruptions include (i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support; (ii) reductions in spending by our customers;

(iii) delays in approvals by regulatory bodies; (iv) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (v) reductions in our sales team, including through layoffs, furloughs or other losses of sales representatives; (vi) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture our products;

(vii) disruption of our research and development activities;

and (viii) delays in ongoing studies and pre-clinical trials.

In addition, elective procedures that use our products significantly decreased in number during fiscal year 2021, as health care organizations around the world prioritized the treatment of patients with COVID-19 and reduced spending in other areas.

For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients.

Many of these procedures that use our products have been suspended or postponed.

While certain of these procedures have resumed in certain locations, it is unclear when or if all procedures in all locations will resume.

Similarly, our clinical trials may be materially impacted by the coronavirus as hospitals prioritize treating coronavirus patients.

In addition, most of the hospitals and clinics that purchase our products have instituted strict procedures at their facilities in an effort to prevent the spread of COVID-19, including restrictions on sales representatives entering these facilities.

This has been, and currently remains, a major impediment to our sales efforts, as supporting existing customers and acquiring new customers is much more difficult in this environment.

These restrictions have had an effect on our sales and, until they are lifted, our business, operations and financial results will continue to be adversely impacted.

These challenges and restrictions will likely continue for the duration of the pandemic, which is uncertain, and may even continue beyond the pandemic.

Many areas are relaxing restrictions and resuming business operations, but a resurgence in infections or mutations of the coronavirus that causes COVID-19 could cause authorities to reinstate such restrictions or impose additional restrictions.

All of these factors also may cause or contribute to disruptions and delays in our logistics and supply chain.

The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on future developments that are uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of the virus and the actions by government entities, our customers and other parties to contain the virus or treat its impact, among others.

To the extent the COVID-19 pandemic adversely affects our business, operations and financial results, it may also have the effect of heightening other risks described herein, such as those relating to general economic conditions, demand for our products, relationships with suppliers and sales efforts.

RISKS RELATED TO THE REGULATORY ENVIRONMENT

Reforms to the United States healthcare system may adversely affect our business.

In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the federal government, state governments, regulators and third-party payers to control these costs and, more generally, to reform

the health care system, including U.S.

health care reform legislation.

Certain of these proposals could, among other things, limit the prices we are able to charge for our products or the amounts of reimbursement available for our products and could limit the acceptance and availability of our products.

The adoption of some or all of these proposals could have an adverse effect on our business, results of operations, financial condition and cash flows.

Our industry is experiencing greater scrutiny and regulation by governmental authorities, which has led to certain costs and business distractions as we respond to inquiries and comply with new regulations, and may lead to greater governmental regulation in the future.

Our medical devices and our business activities are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities.

These authorities and members of Congress have been increasing their scrutiny of our industry.

In addition, certain states, including Massachusetts, have recently passed or are considering legislation restricting our interactions with health care providers and requiring disclosure of many payments to them.

The federal government has recently introduced similar legislation, which may or may not preempt state laws.

Recent Supreme Court case law has clarified that the FDA’s authority over medical devices preempts state tort laws, but legislation has been introduced at the federal level to allow state intervention, which could lead to increased and inconsistent regulation at the state level.

We anticipate that the government will continue to scrutinize our industry closely, and that additional regulation by governmental authorities may increase compliance costs, increase exposure to litigation and may have other adverse effects to our operations.

We are subject to a comprehensive system of federal, state and international laws and regulations, and we could be the subject of investigations, enforcement actions or face lawsuits and monetary or equitable judgments.

We operate in many parts of the world, and our operations are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, anti-bribery, fraud and abuse, export control, tax, employment and laws regarding privacy, personally identifiable information and protected health information, including, for example, the Food, Drug and Cosmetic Act (“FDCA”), various FDA and international regulations relating to, among other things, the development, quality assurance, manufacturing, importation, distribution, marketing and sale of, and billing for, our products, the federal Anti-Kickback Statute and Federal False Claims Act (Note 17), the U.S.

Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act of 2010, the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), General Data Protection Regulation ("GDPR") and other foreign data protection and privacy laws, and laws and regulations relating to sanctions and money laundering.

We are subject to periodic inspections to determine compliance with the FDA’s Quality System Regulation requirements, current medical device adverse event reporting regulations, and similar foreign rules and regulations.

Despite our training and compliance programs, our internal control policies and procedures may not always protect us from negligent, reckless or criminal acts committed by our employees or agents.

Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in international jurisdictions, including the UK Anti-Bribery Act, the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), General Data Protection Regulation (“GDPR”), domestic and foreign data protection, data security and privacy laws, laws related to the collection, storage, use and disclosure of personal data and laws and regulations relating to sanctions and money laundering.

The failure to comply with these laws and regulatory standards, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer:

(i) could result in FDA Form-483 notices and/or warning letters or the foreign equivalent, fines, delays or suspensions of regulatory clearances, investigations, detainment, seizures or recalls of products (with the attendant expenses), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and/or civil or criminal prosecution, and/or penalties, as well as decreased sales as a result of negative publicity and product liability claims;

and (ii) could disrupt our business and could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

Most of our products must receive clearance or approval from the FDA or comparable regulatory agencies abroad before they can be marketed or sold.

State, federal and foreign registration regulations are both evolving and subject to varied levels of interpretation and enforcement.

It can be costly and time-consuming to obtain and maintain regulatory approvals to market a medical device.

Approvals might not be granted on a timely basis, if at all, for new devices, new indications for use or certain modifications or enhancements to previously approved products.

Even after a device receives regulatory approval it remains subject to significant regulatory and quality requirements, such as manufacturing, recordkeeping, renewal, recertification or reporting and other post market approval requirements, which may include clinical, laboratory or other studies.

Product approvals by the FDA and other foreign regulators can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval or may be re-classified to a higher regulatory classification, such as requiring a Pre-Market Approval (“PMA”) for a previously cleared 510(k) device.

Regulations are also subject to change as a result of legislative, administrative or judicial action, which may further increase our costs or reduce sales.

Our failure to maintain approvals, obtain approval for new products or comply with other applicable regulatory requirements could adversely affect our business, results of operations, financial condition and/or liquidity.

The healthcare industry is under continued scrutiny from state, federal and international governments with respect to industry practices in the area of sales and marketing, including provisions of the Physician Payment Sunshine Act.

If our marketing, sales or other activities fail to comply with the FDA’s or other comparable foreign regulatory agencies’ regulations or guidelines, or other applicable laws, we may be subject to warnings from the FDA or investigations or enforcement actions

from the FDA, Medicare, the Office of Inspector General of the U.S.

(ii) could expose us to breach of contract claims, fines and penalties, costs for remediation and harm to our reputation;

(iii) could result in criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs outside the United States;

and (iv) could otherwise disrupt our business and could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

The healthcare industry is under continued scrutiny from state, federal and international governments, including with respect to industry practices in the area of sales and marketing.

Certain states, including Massachusetts, have recently passed or are considering legislation restricting our interactions with health care providers and requiring disclosure of many payments to them.

The federal government has recently introduced similar legislation, which may or may not preempt state laws.

Department of Health and Human Services or other government agencies or enforcement bodies.

Additionally, in the European Union, a new draft Medical Device Regulation was published in 2016 imposing stricter requirements for the marketing and sale of medical devices and grants Notified Bodies increased post-market surveillance authority.

The Company is monitoring the implementation of the regulation and has undertaken initial actions to move toward compliance based on the published draft of the regulation.

The Company’s failure to comply with any marketing or sales regulations or any other applicable regulatory requirements could adversely affect our business, results of operations, financial condition and/or liquidity.

In the recent past, medical device manufacturers have been the subject of investigations from government agencies related to their relationships with doctors, product sales and marketing and off-label promotion of products, among other activities or practices.

If an enforcement action involving the Company were to occur, it could result in penalties, fines, detainment, seizures, recalls, product bans, operating restrictions (which may include loss of a license or authorization), the exclusion of our products from reimbursement under government-funded programs and/or prohibitions on our ability to sell our products, and could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

In addition, remediation of any issues identified by the FDA or other regulators could require facility upgrades, process changes, additional labeling requirements or other measures, any of which could have a material adverse effect on our business and/or results of operations.

In addition, lawsuits by or otherwise involving employees, customers, licensors, licensees, suppliers, vendors, business partners, distributors, shareholders or competitors with respect to how we conduct our business could be very costly and could substantially disrupt our business.

Disputes from time-to-time with companies or individuals are not uncommon, and we cannot assure you that we will be able to resolve these disputes on terms favorable to us.

The occurrence of an adverse monetary or equitable judgment or a large expenditure in connection with a settlement of any of these matters could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

We are subject to data privacy and protection regulations and laws globally, and could face substantial penalties if we fail to comply with such regulations and laws.

We are subject to a variety of laws and regulations globally regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data, including Europe’s General Data Protection Regulation (GDPR).

These laws and regulations regarding the handling of personal data are broad in scope and are subject to evolving interpretation and can include significant penalties for non-compliance.

We could be required to incur substantial costs to monitor compliance or to alter our practices.

Failure to comply with laws relating to the handling and transmission of electronic health data may require us to make significant changes to our products, or incur penalties or other liabilities.

State, federal and foreign laws, such as the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), regulate the confidentiality of personally identifiable health information and other sensitive personal information and the circumstances under which such information may be released.

These measures may govern the disclosure and use of personal and patient medical record information and may require users of such information to implement specified technical, administrative and security measures, and to notify individuals in the event of privacy and security breaches.

Evolving laws and regulations in this area could require us to incur significant additional costs to re-design our products or systems and procedures which could have an adverse impact on our results of operations.

Failure to maintain the confidentiality of sensitive personal information in accordance with the applicable regulatory requirements, or to abide by electronic health data transmission standards, could expose us to breach of contract claims, fines and penalties, costs for remediation and harm to our reputation.

We are subject to healthcare fraud and abuse regulations that could result in significant liability, require us to change our business practices and restrict our operations in the future.

We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws.

Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs outside the United States.

These laws and regulations are wide ranging and subject to changing interpretation and application, which could restrict our sales or marketing practices.

Furthermore, since many of our customers rely on reimbursement from Medicare, Medicaid and other governmental programs to cover a substantial portion of their expenditures, our exclusion from such programs as a result of a violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flow.

The occurrence of an adverse monetary or equitable judgment or a large expenditure in connection with a settlement of any of these matters could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

If we or some of our suppliers fail to comply with the FDA’s Quality System Regulation, or QSR, and other applicable post-market requirements, our manufacturing operations could be disrupted, our product sales and profitability could suffer, and we may be subject to a wide variety of FDA enforcement actions.

After a device is placed on the market, numerous regulatory requirements apply.

We are subject to inspection and marketing surveillance by the FDA to determine our compliance with all regulatory requirements.

Our failure to comply with applicable regulatory requirements could result in the FDA or a court instituting a wide variety of enforcement actions against us, including a public "Warning Letter";

an order to shut down some or all manufacturing operations;

a recall of products;

fines or civil penalties;

seizure or detention of our products;

refusing our requests for 510(k) clearance or a PMA of new or modified products;

withdrawing 510(k) clearance or PMA approvals already granted to us;

and criminal prosecution.

Our manufacturing processes and those of some of our suppliers must comply with the FDA’s Quality System Regulation, or QSR, which governs the methods used in, and the facilities and controls used for, the design, testing, manufacture, control, quality assurance, installation, servicing, labeling, packaging, storage and shipping of medical devices.

The FDA enforces the QSR through unannounced inspections.

Despite our training and compliance programs, our internal control policies and procedures may not always protect us from negligent, reckless or criminal acts committed by our employees or agents.

If we, or one of our suppliers, fail a QSR inspection, or if a corrective action plan adopted by us or one of our suppliers is not sufficient, the FDA may bring an enforcement action, and our operations could be disrupted and our manufacturing delayed.

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The FDA has recently placed increased emphasis on its scrutiny of compliance with the QSR and these other post-market requirements.

If we, or one of our suppliers, violate the FDA’s requirements or fail to take adequate corrective action in response to any significant compliance issue raised by the FDA, the FDA can take various enforcement actions which could cause our product sales and profitability to suffer.

In addition, most other countries require us and our suppliers to comply with manufacturing and quality assurance standards for medical devices that are similar to those in force in the United States before marketing and selling our products in those countries.

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Our products are medical devices that are subject to extensive regulation in the United States and in the foreign countries in which they are sold.

Unless an exemption applies, each medical device that we wish to market in the United States must receive either 510(k) clearance or premarket approval (PMA) from the FDA before the product can be sold.

Unless an exemption applies, each medical device that we wish to market in the United States must receive either 510(k) clearance or Pre-Market Approval (“PMA”) from the FDA before the product can be sold.

Either process can be lengthy and expensive.

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This process usually takes from four to twelve months from the date the premarket notification is submitted to the FDA, but may take significantly longer.

Although we have obtained 510(k) clearances for our current products, our clearances may be revoked by the FDA if safety or effectiveness problems develop with the devices.

The PMA process is much more costly, lengthy and uncertain.

It generally takes from one to three years from the date the application is submitted to, and filed with the FDA, and may take even longer.

In addition, any modification to an FDA-cleared medical device that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, requires a new FDA 510(k) clearance or, possibly, a PMA.

Regulatory regimes in other countries similarly require approval or clearance prior to our marketing or selling products in those countries.

We rely on our distributors to obtain regulatory clearances or approvals of our products outside of the United States.

We rely on our distributors to obtain regulatory clearances or approvals of our products outside of the United

If we are unable to obtain additional clearances or approvals needed to market existing or new products in the United States or elsewhere or obtain these clearances or approvals in a timely fashion or at all, or if our existing clearances are revoked, our revenues and profitability may decline.

Modifications to our current products may require new marketing clearances or approvals or require us to cease marketing or recall the modified products until such clearances or approvals are obtained.

Any modification to an FDA-cleared medical device that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, requires a new FDA 510(k) clearance or, possibly, a premarket approval.

The FDA requires every manufacturer to make its own determination as to whether a modification requires a new 510(k) clearance or premarket approval, but the FDA may review and disagree with any decision reached by the manufacturer.

We have modified aspects of some of our devices since receiving regulatory clearance.

We believed that some of these modifications did not require new 510(k) clearance or premarket approval and, therefore, we did not seek new 510(k) clearances or premarket approvals.

In the future, we may make additional modifications to our products after they have received FDA clearance or approval and, in appropriate circumstances, determine that new clearance or approval is unnecessary.

Regulations in other countries in which we market or sell, or propose to market or sell, may also require that we make judgments about changes to our products and whether or not those changes are such that regulatory approval or clearance should be obtained.

In the United States and elsewhere, regulatory authorities may disagree with our past or future decisions not

to seek new clearance or approval and may require us to obtain clearance or approval for modifications to our products.

If that were to occur for a previously cleared or approved product, we may be required to cease marketing or recall the modified device until we obtain the necessary clearance or approval.

Under these circumstances, we may also be subject to significant regulatory fines or other penalties.

If any of the foregoing were to occur, our financial condition and results of operations could be negatively impacted.

Even after receiving regulatory clearance or approval, our products may be subject to product recalls, which may harm our reputation and divert managerial and financial resources.

Our products may be subject to product recalls, which may harm our reputation and divert managerial and financial resources.

The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if there are material deficiencies or defects in design, manufacture, installation, servicing or labeling of the device, or if the governmental entity finds that our products would cause serious adverse health consequences.

A government mandated voluntary recall or field action by us could occur as a result of component failures, manufacturing errors or design defects, including labeling defects.

Any recall of our products may harm our reputation with customers and divert managerial and financial resources.

In fiscal year 2020, we did a voluntary recall of the OARtrac product, that was acquired as part of the RadiaDyne acquisition in the second quarter of fiscal year 2019, to address installation issues that were identified once the product was placed in the field.

Any recall of our products may harm our reputation with customers and divert managerial, engineering and financial resources.

Our insurance policies may not provide sufficient protection should a claim be asserted.

A recall of any of our products could harm our reputation, divert managerial and financial resources and have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

We may be subject to fines, penalties, injunctions or costly investigations if we are determined to be promoting the use of our products for unapproved or “off-label” uses.

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It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

Any of these results could have a material adverse effect on our financial position or results of operations.

If our employees or agents violate the U.S.

Foreign Corrupt Practices Act or anti-bribery laws in other jurisdictions, we may incur fines or penalties, or experience other adverse consequences.

We are subject to the U.S.

Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery laws in international jurisdictions, including the UK Anti-Bribery Act, which generally prohibit companies and their intermediaries from making improper payments to non-U.S.

officials for the purpose of obtaining or retaining business.

Because of the predominance of government-sponsored healthcare systems around the world, many of our customer relationships outside of the United States are with governmental entities and are therefore subject to such anti-bribery laws.

Our sales to customers and distributors outside of the United States have been increasing and we expect them to continue to increase in the future.

If our employees or agents violate the provisions of the FCPA or other anti-bribery laws, we may incur fines or penalties, we may be unable to market our products in other countries or we may experience other adverse consequences which could have a material adverse effect on our operating results or financial condition.

Any of these results could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Laws and regulations governing the export of our products could adversely impact our business.

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These business dealings may expose us to a heightened risk of violating applicable sanctions regulations.

Violations of these regulations are

punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment.

Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts, revocations or restrictions of licenses, and/or criminal fines and imprisonment.

We have established policies and procedures designed to assist with our compliance with such laws and regulations.

However, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition, results of operations and cash flows.

Changes in reimbursement levels by governmental or other third-party payors for procedures using our products may cause our revenues to decline.

Our products are purchased principally by hospitals or physicians which typically bill various third-party payors, such as governmental programs (e.g.

Medicare, Medicaid and comparable foreign programs), private insurance plans and managed care plans, for the healthcare services provided to their patients.

Reimbursement varies by country and can significantly impact the acceptance of new technology.

Even when we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third party payors.

Third-party payors have adopted, and are continuing to adopt, a number of healthcare policies intended to curb rising healthcare costs.

These policies include:

• controls on government-funded reimbursement for healthcare services and price controls on medical products and services providers;

• challenges to the pricing of medical procedures or limits or prohibitions on reimbursement for specific devices and therapies through other means;

• the introduction of managed care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per person.

We are unable to predict whether federal, state or local healthcare reform legislation or regulation affecting our business may be proposed or enacted in the future, or what effect any such legislation or regulation would have on our business.

Changes in healthcare systems in the United States or elsewhere in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for these procedures, or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.

RISKS RELATED TO INTELLECTUAL PROPERTY

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Our success depends in part on obtaining, maintaining and enforcing our patents, trademarks and other proprietary rights, and our ability to avoid infringing the proprietary rights of others.

We take precautionary steps to protect our technological advantages and intellectual property.

We rely upon patent, trade secret, copyright, know-how and trademark laws, as well as license agreements and contractual provisions, to establish our intellectual property rights and protect our products.

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There is also no assurance that any existing or future patent will provide significant protection or commercial advantage, or whether any existing or future patent will be circumvented by a more basic patent, thus requiring us to obtain a license to produce and sell the product.

Generally, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date.

In addition, publication of discoveries in the scientific or patent literature often lags behind actual discoveries.

Therefore, we cannot be certain that we were the first to invent the subject matter covered by each of our pending U.S.

patent applications or that we were the first to file non-U.S.

patent applications for such subject matter.

Additionally, we rely on trade secret protection for certain unpatented aspects of our proprietary technology.

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Third parties may claim that our products infringe their patents and other intellectual property rights.

Identifying third-party patent rights can be particularly difficult because, in general, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date.

Identifying third-party patent rights can be particularly difficult because, in general, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries.

Some companies in the medical device industry have used intellectual property infringement litigation to gain a competitive advantage.

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Such claims could also cause our customers or potential customers to purchase competitors’ products or defer or limit their purchase or use of our affected products until resolution of the claim.

See Note 17 in the consolidated financial statements.

See Part I, Item 3 "Legal Proceedings" of this report for additional details on litigation regarding proprietary technology.

RISKS RELATED TO OUR STOCK PRICE

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• our ability to integrate acquired assets or companies;

• our ability to timely divest of assets that are covered by Transition Service Agreements;

• the effect of intellectual property disputes;

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Our stock price may be volatile, which may cause the value of our stock to decline or subject us to a securities class action litigation.

The trading price of our common stock price may be volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

• general economic, industry and market conditions;

• actions by institutional or other large stockholders;

• the depth and liquidity of the market for our common stock;

• volume and timing of orders for our products;

• developments generally affecting medical device companies;

• the announcement of new products or product enhancements by us or our competitors;

• changes in earnings estimates or recommendations by securities analysts;

• investor perceptions of us and our business, including changes in market valuations of medical device companies;

• our results of operations and financial performance.

In connection with the recent stock market decline that began in March 2020, the closing market price of our common stock has declined significantly.

In recent years, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar to ours.

Some of these fluctuations have been unrelated to operating performance and are attributable, in part, to outside factors such as the recent coronavirus (COVID-19) outbreak and its potential impact on the world economy.

In addition, the stock market in general, and the NASDAQ Stock Market and the market for medical devices in particular, have experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of particular companies.

The trading price of our common stock price may be volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, attributable to outside factors and/or unrelated to operating performance.

Such factors may include comments by securities analysts or other third parties, including blogs, articles, message boards and social and other media coverage which may not be attributable to us and may not be reliable or accurate.

The NASDAQ Stock Market and medical devices companies in particular have experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of the companies.

These broad market fluctuations may cause the trading price of our common stock to decline.

In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock.

We may become involved in this type of litigation in the future.

Any securities litigation claims brought against us could result in substantial expense and the diversion of management’s attention from our business.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors